If the banks have proved anything beyond a reasonable doubt it is that neither their methods nor their documents entitle them to any presumptions in their favor.
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Interesting points here. In addition to all the defects in securitization, the banks have long been violating both the spirit and letter of State usury laws. Originally the rates were increased in the Jimmy Carter years when the prime rate went over 20%. It was thought to be “only fair” that the credit card companies be able to get the interest rates required to make a profit.
But when interest rates dropped for everyone and everything else, credit cards and other consumer loans stayed at the same rates — reaching as high as 35%. In fact the loophole created by that legislation made it possible for companies to lure workers into payday loans whose effective rates were many times the rates charged by credit cards. All of that led to the widespread marketing of consumer “credit” using rates that were considered for centuries as against public policy, impossible to pay and leading to financial ruin of anyone lured into such a deal.
The flood of credit into the marketplace and the lack of education of consumers is what eventually led to consumer complacency on stagnating, and ultimately declining wages. As long as the money was there and sold as “payments” rather the entire debt, most consumers thought they were OK, regardless of whether they got the money through wages or credit. In substance they were no longer buying things, they were renting them. When they maxed out their credit, they just got more credit, at higher and higher rates.
The carryover to the mortgage market was equally stunning. Most loans don’t last more than 7 years and often are refinanced or paid off within three years. Amortizing the fees and other costs with getting the loan at 30 years is a misrepresentation of the true APR.
Negative amortization is even more egregious. In most cases it is obvious from the face of the documents that the loan cannot, under any scenario, last more than five years; it is plain as day that the loan will be ended by foreclosure at that time. Consumers, who have been sold on “payments”, do not realize that they are not borrowing $200,000 when they take a negative amortization loan. Starting with the very first month, the principal due is more than the original “loan” and grows every month.
AND when the principal grows to 115% of the original loan amount the loan automatically resets to full amortization. So the banks failed to disclose the truth in virtually every negative amortization loan. They qualified the homeowner based upon the teaser payment, or the negative amortization payment knowing full well that household income was, in many cases, lower than the the payment required for full amortization on the larger loan principal now demanded by the fictitious lender. So that initial payment of $800 per month jumps to as much as $8,000 per month, far in excess of total household income.
Once again the real APR factoring in all the charges and fees, is far above the APR disclosed on the Good Faith Estimate. And of course the consumer was lured into buying both a home and loan product that could never be satisfied. People say that is the borrower’s fault. But that is not public policy or law. The whole reason for the Truth in Lending Act is that these transactions are far too complicated for consumers to understand.
That is the reason why there are both Federal and State disclosure requirements. What the banks did, with other people’s money, was lend at effective APR that in most cases far exceeded usury laws passed by the states. Someone who paid $18,000 in fees and points for a $200,000 loan has paid 8% in such fees and points. If their loan resets in 3 years, which is the end date of the loan (see above), whatever APR was disclosed should have been increased by 3% instead of the tiny fraction used for the apparent but fictitious end of the loan in 30 years.
Each state has its own remedy for usury. It is many times the basis of rescission but even more than that, many states will impose penalties against “lenders” that include treble damages, and loss of the entire principal.
It has been many years since I first brought this up on the blog. My opinion is that usury, like rescission, paves the way to relief for vast numbers of struggling homeowners who were tricked into loans that could never work.
And it should have an effect on the rules of evidence: given the wrongful behavior at the alleged “closing” and documents submitted in support of a foreclosure should no longer be given any presumption of authenticity or validity by a trial judge. The Judge should require actual proof of the actual transaction rather than accepting a document that appears to be facially valid.
This application of law would apply to all secured loans and most unsecured loans.
Filed under: foreclosure